675 F.

2d 525

M. W. ZACK METAL CO., Plaintiff-Appellant-CrossAppellee,

v.
INTERNATIONAL NAVIGATION CORPORATION OF
MONROVIA, Jansen &
Co., Contam Linie, Hans H. Jansen, Jurgen K. Krafft,
Newcastle Protection & Indemnity Association, The London
Steamship Owner's Mutual Insurance Association, Ltd.,
Defendants-Appellees.
Newcastle Protection & Indemnity Association and The
London
Steamship Owner's Insurance Association Limited,
Defendants-Appellees-Cross-Appellants.
Nos. 473, 580, Dockets 80-7003, 81-7353.

United States Court of Appeals,

Second Circuit.
Argued Jan. 25, 1982.
Decided April 12, 1982.

Anthony B. Cataldo, New York City, for plaintiff-appellant-crossappellee.

Donald B. Allen, New York City (Hill, Rivkins, Carey, Loesberg, O'Brien
& Mulroy, New York City, of counsel), for defendants-appellees-crossappellants.
Robert W. Mullen, Dickerson, Reilly & Mullen, New York City, for
defendants-appellees.
Before MESKILL and CARDAMONE, Circuit Judges, and HOLDEN,
District Judge.*
MESKILL, Circuit Judge:

M. W. Zack Metal Co. ("Zack") appeals from a judgment entered by the United
States District Court for the Southern District of New York, Robert W. Sweet,
Judge, dismissing its complaint, which sought recovery for cargo damage and
for fraud. Newcastle Protection & Indemnity Association and the London
Steamship Owner's Mutual Insurance Association Limited (the "Insurers")
cross-appeal from Judge Sweet's dismissal of their counterclaim for malicious
prosecution and abuse of process. For the reasons set forth below, we affirm the
district court's decision in all respects.

BACKGROUND
2

Zack comes before this Court with a matter that was first litigated over twentytwo years ago and that has consumed an inordinate amount of the resources of
courts in this country and abroad. The facts and procedural history of the
dispute are as follows.

On January 18, 1960, Zack purchased ninety-three coils of Austrian hot rolled
steel which it had contracted to sell in the United States to Dearborn Steel
Sales, Inc. The steel was shipped under a clean bill of lading from Belgium to
New York aboard the S.S. SEVERN RIVER, a vessel owned by International
Navigation Corporation of Monrovia ("International"), a Liberian corporation,
and under charter to Jansen & Co. (the "Charterer"), a German partnership. The
steel was damaged in transit and, after Dearborn Steel refused to accept
shipment, was sold by Zack to a German company for approximately one-half
of Zack's cost.1

On February 11, 1960, Zack commenced suit against the SEVERN RIVER and
the Charterer in the United States District Court for the Southern District of
New York seeking to recover $80,000 in damages, the difference between the
market value of the steel in good condition and its salvage value less resale
expenses. That action was dismissed without prejudice for failure to prosecute,
service having never been effected on any of the defendants. Thereafter, on
January 27, 1961, Zack sent a letter to the Charterer's agent in New York,
Oceana of Canada Ltd., requesting an extension until May 15, 1961 of the
limitations period under the Carriage of Goods by Sea Act ("COGSA"), 46
U.S.C. 1303(6) (1976).2 Oceana granted Zack's request.

Three days before the extension was due to expire, Zack filed identical actions
for the cargo loss in the United States District Court for the District of New
Jersey and the United States District Court for the Eastern District of New
York. The following day, Zack filed a similar action in the County Court for
Commercial Affairs in Hamburg, Germany. Both district court cases were

dismissed for failure to prosecute.

6

While the German case was pending, Zack brought an action in New York
State Supreme Court against its cargo underwriter, Federal Insurance Company
("Federal") to recover for the cargo loss. On March 14, 1968, after two trials
and two appeals, and during a third trial, a settlement was reached under which
Zack received $40,000 on the cargo damage claim plus $19,453 in interest. 3
The settlement also permitted Zack to continue the action in Germany provided
that Federal received fifty-five percent of any net recovery.

In 1970 the Insurers, indemnity insurers of the Charterer and International,

purchased Federal's interest in the outcome of the German litigation. Zack then
commenced an action against the Insurers charging them with fraud in
purchasing Federal's interest. Zack represents that this action is still pending.

On December 7, 1971, after ten years of litigation, the German trial court found
the Charterer, its partners and International liable to Zack for $64,000 plus
interest and costs.4 International's liability was limited to execution upon the
SEVERN RIVER, which, unknown to the German court, had foundered at sea
some three years earlier.

Later in 1971, Newcastle, in an effort to forestall execution on the judgment

pending the outcome of an appeal, signed a guarantee of satisfaction of
payment to Zack to become operative upon either the entry of a final decision
by the German courts or upon a settlement agreement. During the pendency of
the appellate proceedings in Germany, Zack filed suit in the United States
District Court for the Eastern District of Virginia seeking to recover against
International by attaching one of its vessels, the VIRTUS, in Norfolk. Zack
asserted that the attachment action was proper because the SEVERN RIVER
had run aground. The attachment order was eventually vacated and the suit
dismissed. On appeal, the Fourth Circuit affirmed the dismissal, holding that
because the German judgment was "in rem" against the SEVERN RIVER, it
"furnish(ed) no basis for the assertion of an in personam liability of the owner
or the attachment of any other vessel owned by International." M. W. Zack
Metal Co. v. International Navigation Corp., 510 F.2d 451, 452-53 (4th Cir.),
cert. denied, 423 U.S. 835, 96 S.Ct. 60, 46 L.Ed.2d 53 (1975).

10

On January 9, 1975, the Hanseatic Provincial Court of Appeals in Germany

dismissed Zack's claim against International, finding that the written extension
of time to sue from February 16 to May 15, 1961 given to Zack by the
Charterer's agent in New York did not bind International, causing Zack's claim

against the shipowner to be time-barred under COGSA, 46 U.S.C. 1303(6),

and applicable German law. In addition, while the court found that the
Charterer and its partners were liable for the cargo damage, it reduced their
liability to $33,000 plus interest and costs.5 Thereafter, the Insurers posted a
bond to guarantee satisfaction of payment of the Charterer's liability and a lien
to protect its interest in Zack's recovery. Zack has yet to execute on the
judgment of the German appeals court.
11

In 1976, Zack moved in the United States District Court for the District of New
Jersey to have its claim against the SEVERN RIVER restored to the docket.
The district court denied the motion and the Third Circuit affirmed. M. W.
Zack Metal Co. v. S.S. Severn River, No. 386-61 (D.N.J. Oct. 19, 1976), aff'd
by order, 577 F.2d 727 (3d Cir.), cert. denied, 439 U.S. 894, 99 S.Ct. 251, 58
L.Ed.2d 239 (1978).

12

Zack filed the instant action in the United States District Court for the Southern
District of New York on July 31, 1978 alleging five causes of action. The first
three prayed for recovery for cargo damage against International and the
Charterer, the Charterer and Newcastle, and International and London,
respectively. The fourth pleaded for collection upon Newcastle's written
guarantee of satisfaction. The final cause of action sought damages against the
Insurers for fraud. Zack alleged that International and the Charterer, through
attorneys retained by the Insurers, defrauded the courts which had rendered
decisions on Zack's cargo damage claims by misstating the law and
withholding operative facts. The defendants counterclaimed, charging Zack
with malicious prosecution and abuse of process for failing to reduce its claim
to judgment in the German courts and for instituting the subsequent actions in
the United States.

13

The district court, on defendants' motion pursuant to Fed.R.Civ.P. 12(b)(6),

dismissed all of Zack's claims except that which sought recovery on the
Newcastle guarantee. Judge Sweet found that the cargo damage claims were
barred by the one year limitations period in COGSA, 46 U.S.C. 1303(6),
having been brought eighteen years after delivery of the goods. Judge Sweet
found that each of Zack's claims for fraud could be presented only in the court
where the fraud was allegedly perpetrated. Alternatively, the court held that an
independent action for fraud will not lie where, as here, the party alleging fraud
had an opportunity to raise these claims in prior proceedings, or where the
allegations involve intrinsic fraud.

14

Following a two-day trial, the district court also dismissed Zack's claim on the
Newcastle guarantee without prejudice, finding that Zack had failed to prove

that the determination of the Hanseatic Provincial Court in Germany was a

"final decision" within the meaning of the guarantee. In addition, the court
dismissed defendants' counterclaim holding that Zack's counsel acted in good
faith and, therefore, did not possess the required scienter for malicious
prosecution or abuse of process.
DISCUSSION
15

Zack alleges on appeal that its claims for cargo damage are not time-barred;
that it presented sufficient evidence that the Charterer and Newcastle are
presently obligated under the Newcastle guarantee to pay Zack $110,000 in
damages; and that it may maintain an independent action in federal district
court for fraud committed by the Insurers in prior litigation concerning the
cargo damage claim. The Insurers contend that the district court erred in
dismissing their malicious prosecution and abuse of process counterclaims and
in failing to dismiss Zack's claim on the Newcastle guarantee with prejudice.

16

Zack first contends that the district court erred in dismissing as time-barred its
claims for recovery for cargo damage. The pertinent section of COGSA
provides that "the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after delivery of
the goods or the date when the goods should have been delivered." 46 U.S.C.
1303(6). The complaint in this action was filed eighteen years after the
SEVERN RIVER arrived in New York with the damaged goods. Zack asserts,
however, that it complied with COGSA's statute of limitations by bringing suit
in district court in February 1961. This claim is frivolous. The mere filing of a
suit by Zack within the limitations period did not forever toll COGSA's statute
of limitations. Because this suit was not brought within the one year period,
Zack is barred from raising these cargo damage claims. See Instituto Cubano
De Estabilizacion Del Azucar v. T/V Golden West, 246 F.2d 802, 804 (2d
Cir.), cert. denied, 355 U.S. 884, 78 S.Ct. 152, 2 L.Ed.2d 114 (1957); Badhwar
v. Colorado Fuel & Iron Corp., 245 F.2d 903, 907 (2nd Cir.), cert. denied, 355
U.S. 862, 78 S.Ct. 95, 2 L.Ed.2d 68 (1957); Joo Seng Hong Kong Co. v. S.S.
Unibulkfir, 493 F.Supp. 35, 39 (D.C.S.D.N.Y.1980).

17

Zack next alleges that the district court erred in dismissing its claim against the
Insurers for fraud allegedly perpetrated on the various courts which had
rendered decisions on its cargo damage claim. The district court characterized
this claim as an independent action for fraud under the saving clause of
Fed.R.Civ.P. 60(b).6 Zack's allegations that Insurers' counsel perpetrated fraud
upon the various courts arguably fits within the saving clause and is not timebarred. See generally Serzysko v. Chase Manhattan Bank, 461 F.2d 699, 702

(2nd Cir.), cert. denied, 409 U.S. 883, 93 S.Ct. 173, 34 L.Ed.2d 139 (1972).
However, we agree with the district court that Zack had an opportunity to raise
these fraud claims in the courts in which they occurred and, therefore, cannot
maintain this independent action for fraud.
18

An independent action for fraud may not be entertained if "there was an

opportunity to have the ground now relied upon to set aside the judgment fully
litigated in the original action." Serzysko v. Chase Manhattan Bank, 461 F.2d
at 702 n.2. See Marshall v. Holmes, 141 U.S. 589, 596, 12 S.Ct. 62, 64, 35
L.Ed. 870 (1891). Here, Zack had prior opportunities to raise its fraud claims.
For example, Zack alleges that the Insurers fraudulently concealed from the
German trial court their knowledge that the SEVERN RIVER had run aground.
Zack has had ample opportunity to raise this claim before the German appeals
court. Further, Zack actually raised this argument, though unsuccessfully, in the
United States District Court for the District of Virginia in its attachment action
against the VIRTUS. Zack also had a chance to raise this claim in its appeal to
the Fourth Circuit. Likewise, Zack had the opportunity in both German courts
and did try to prove there that the extension of time to sue granted by the
Charterer's agent in New York also bound the shipowner. Its claim that the
Insurers failed to disclose to it and to the courts facts which indicated that
COGSA's time-bar covered International, even if true, "does not add up to
'fraud upon the court' for purposes of vacating a judgment under Rule 60(b)."
Kerwit Medical Products, Inc. v. N. & H. Instruments, Inc., 616 F.2d 833, 837
(5th Cir. 1980). See H. K. Porter Co. v. Goodyear Tire & Rubber Co., 536 F.2d
1115, 1118 (6th Cir. 1976); Kupferman v. Consolidated Research &
Manufacturing Corp., 459 F.2d 1072, 1080-81 (2nd Cir. 1972). Further, we see
no reason why the documents that Zack presented below in support of this
claim could not have been presented in the prior proceedings. See Konigsberg
v. Security National Bank, 66 F.R.D. 439, 442-43 (D.C.S.D.N.Y.1975).

19

Having found that the district court did not err in dismissing Zack's independent
action for fraud because Zack had an opportunity to raise these claims in prior
proceedings, we need not determine whether the claim is also invalid because
each allegation of fraud is intrinsic to these other proceedings. See United
States v. Throckmorton, 98 U.S. 61, 68, 25 L.Ed. 93 (1878); 7 J. Moore Federal
Practice P 60.37(1) (2d ed. 1979).

20

Finally, Zack contends that the district court erred in dismissing without
prejudice its claim for $110,000 from the Insurers under the terms of the
Newcastle guarantee.7 The district court, although recognizing that "some
money is owed by the defendants to plaintiff", dismissed this claim because
Zack had failed to establish "the entry of or the amount of a final judgment in

the German courts." Zack asserts that it presented sufficient evidence below,
specifically the Newcastle guarantee and a translated copy of the decision of
the Hanseatic Provincial Court in Germany, to establish a present right to
recover under the guarantee. We disagree. Zack's evidence established only that
the Hanseatic Provincial Court had assessed damages of $33,000 against the
Charterer. Zack presented no evidence that an accounting of costs and interest
had ever been made by the German appeals court. Accordingly, we agree with
the district court that Zack has failed to prove that a "final decision" for
purposes of the guarantee has been entered in Germany.8
21

The Insurers cross-appeal from a dismissal of their counterclaims charging

abuse of process and malicious prosecution by Zack in failing to reduce the
decision of the Hanseatic Provincial Court to judgment and in instituting this
and other suits. The district court found that while Zack's counsel is
"incompetent," he acted in good faith and therefore did not possess the
necessary scienter to be held liable. The Insurers' sole argument is that anyone
who filed so many suits over this one simple damage claim must, as a matter of
law, have acted in bad faith. We do not approve of the scatter shot approach
taken by Zack's counsel over the last twenty-two years in seeking to recover for
the cargo loss. We do not know, however, whether it should be attributed to
incompetence or bad faith. Therefore we hold that the district court's finding
that Zack's counsel acted in good faith was not clearly erroneous. Fed.R.Civ.P.
52(a).

22

Affirmed. Costs to the defendants-appellees.

23

CARDAMONE, Circuit Judge (concurring in part, dissenting in part).

24

The majority votes to affirm the dismissal of plaintiff's first, second and third
causes of actions and to affirm the dismissal of defendant's counterclaim. I
concur in those affirmances. However, the majority also votes to affirm the
dismissal of plaintiff's fourth and fifth causes of action. From those dispositions
I respectfully dissent and vote to reverse and remand the fourth cause of action
and to remand for trial the fifth cause of action which alleges fraud on the
court.

25

Turning first to plaintiff's fourth cause of action, Zack obtained a "final

decision" sufficient to activate Newcastle's liability under the terms of its
written guarantee. That guarantee stated: "The undersigned company herewith
guarantees to pay upon first request the agreed sum, plus interest and costs in
the amount to which the plaintiff is entitled pursuant to a final decision of the

German courts or on basis of a settlement agreement." Appellant's Appendix at

612. In my view the condition of the guarantee has been met and plaintiff is
entitled to its benefit.
26

The majority does not dispute the finality of the German court judgment. It
simply holds that since plaintiff has presented no evidence of an accounting of
costs and interest there is a failure to prove that a "final decision" has been
entered.

27

Concededly it is possible to construe the guarantee as requiring that the "final

decision" include "interest and costs" as determined by the German courts
because the reference to that court follows that language. It may, on the other
hand, be understood that Newcastle guaranteed to pay the "agreed sum, plus
interest" when determined by a "final decision" of the German courts and
guaranteed to pay Zack its "costs" when they are finally determined. Interest
was fixed in the German judgment at 5% per annum from February 10, 1961.
Judicial and extrajudicial costs are ordinarily computed later under German law
and are presently in litigation in Germany. Nothing in the guarantee requires
that there be a final decision as to costs prior to enforcing the guarantee on the
agreed sum plus interest. At most there is an ambiguity in the guarantee which,
of course, must be construed against defendant Newcastle, its drafter, in favor
of plaintiff, its beneficiary.

28

Once the Hanseatic Provincial Court of Appeals in Germany handed down its
60-page decision awarding plaintiff $33,000 plus interest, plaintiff had a right
to bring suit on the guarantee in the United States District Court to enforce it.
The German court had jurisdiction over the parties and subject matter. Its final
judgment, unless tainted by fraud or barred by the rules of comity, is entitled to
full credit and effect. Hilton v. Guyot, 159 U.S. 113, 16 S.Ct. 139, 40 L.Ed. 95
(1895). A final decision of a German court, under the rules of comity, should be
enforced in the courts of the United States.

29

Further, this case should be returned to the district court for trial on the
independent equitable action for fraud on the court asserted in plaintiff's fifth
cause of action. Nothing corrupts the administration of justice so much as a
deliberate fraud on a court. Its odiousness, undissipated by the passage of time,
lingers like a miasma. It is alleged that we have such a case before us. While
the affirmance by the majority of the trial court's dismissal will end this case, it
will not-if the allegations of plaintiff's complaint are true-remedy the damaging
effects of a claim of fraud now buried in the darkness of a dismissal.

30

Plaintiff's fifth cause of action asserts an independent equitable action for fraud

30

Plaintiff's fifth cause of action asserts an independent equitable action for fraud
practiced on courts in the United States and Germany commencing in 1960.
The action was instituted in the Southern District of New York on June 31,
1978. The district court and the majority relying upon United States v.
Throckmorton, 98 U.S. 61, 25 L.Ed. 93 (1878), held that plaintiff's fifth cause
of action alleging fraud upon the court, which is characterized as essentially a
collateral attack on the previously rendered decision, must be made in the
various courts which were allegedly defrauded. Decisions of the Supreme Court
since Throckmorton was decided in 1878 indicate that the rationale of that case
is no longer persuasive. In Throckmorton the Supreme Court used res judicata
as the legal device to defeat an action based on an old fraud practiced on a
court. The rationale upon which the decision was based appears to be the
Court's view that suits may be immortal, but men are not. Id. 69. Thirteen years
later the Supreme Court in Marshall v. Holmes, 141 U.S. 589, 12 S.Ct. 62, 35
L.Ed. 870 (1891), permitted an equitable action to be filed where it was against
conscience to permit a judgment obtained by claimed fraud to be executed. This
time the Court stated that a court, while not sitting in review, should scrutinize
the conduct of the parties in a new proceeding to determine if one used fraud to
obtain a judgment. If so, the court will deprive him of the benefit of that
judgment and any inequitable advantage gained. Id. at 599, 12 S.Ct. at 65. The
view that "truth is more important than the trouble it takes to get it," set forth in
Publicker v. Shallcross, 106 F.2d 949, 952 (3rd Cir. 1939) is consistent with
Marshall, which Publicker cites at 951.

31

These two Supreme Court cases afforded ample latitude to lower courts for over
50 years to decide equitable causes of alleged fraud on the courts in whatever
way their own predilections led them. More recently the Supreme Court
decided Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 64 S.Ct.
997, 88 L.Ed. 1250 (1944). In that case the trial in which the alleged fraud
occurred took place in 1929, but the fraud was not fully brought to light until
1941. The Supreme Court said, in discussing the independent equitable action
of fraud on the court, that "equitable procedure has always been characterized
by flexibility which enables it to meet new situations which demand equitable
intervention, and to accord all the relief necessary to correct the particular
injustices involved in these situations." Id. at 248, 64 S.Ct. at 1002. Based upon
this historical progression, I conclude that the harsh rule of Throckmorton is not
the current view of the Supreme Court.

32

Thus, it is now established that this type of action should be governed by

flexibility to afford necessary relief. The district court in granting summary
judgment dismissing this cause of action did not examine the facts, but merely
concluded that plaintiff was in the wrong forum. However, its power to
entertain this action is not limited where there is a claim of fraud upon a court.

Fed.R.Civ.P. 60(b). In this case the fraud should have been explored at trial,
particularly since on a motion to dismiss all of the plaintiff's allegations of
fraud are deemed to be true.
33

The majority depicts plaintiff as bringing a multitude of vexatious suits.

However, Newcastle's behavior from the outset of this saga over 20 years
reveals a callous disregard for the truth. For example, it led the District Court in
Hamburg to exercise in rem jurisdiction over a ship the court was told was
sailing on the high seas when in fact Newcastle knew that the SEVERN
RIVER was under the high seas-it had sunk. Its orchestrated tactics-extending
even to buying the subrogation rights of Zack's American insurer on the
damaged cargo claim and using it as a basis to slap a lien on the German
judgment to prevent Zack from executing on it, and then coolly arguing that
Zack did not have a "final decision" from the German court because it had not
entered judgment and executed on it-have frustrated plaintiff at each and every
turn. In my view plaintiff is entitled on the law to have its day in court.

Honorable James S. Holden, Chief Judge of the United States District Court for
the District of Vermont, sitting by designation

The damaged steel was sold for $42,977.98. Zack claimed that its cost of resale
amounted to $12,833.58

Clause 1 of the bill of lading provided that the shipment was subject to the
Carriage of Goods by Sea Act

The two opinions on appeal, in the action captioned M. W. Zack Metal Co. v.
Federal Insurance Co., are reported at 26 A.D.2d 54, 271 N.Y.S.2d 1 (1st Dep't
1966) and 28 A.D.2d 1109, 284 N.Y.S.2d 582 (1st Dep't 1967)

Clause 19 of the bill of lading limited loss to $500 per package or per
customary freight unit. Of course COGSA's package limitation, 46 U.S.C.
1304(5), would apply regardless of this clause. See 46 U.S.C. 1312. The
German trial court computed damages based upon $500 per unit of 1,000
kilograms

Damages were computed on the basis of $500 per damaged coil. The court
determined that 66 coils had been damaged in transit

Fed.R.Civ.P. 60(b) provides in part:

On motion and upon such terms as are just, the court may relieve a party or his

legal representative from a final judgment, order, or proceeding for the

following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2)
newly discovered evidence which by due diligence could not have been
discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether
heretofore denominated intrinsic or extrinsic), misrepresentation, or other
misconduct of an adverse party; (4) the judgment is void; (5) the judgment has
been satisfied, released, or discharged, or a prior judgment upon which it is
based has been reversed or otherwise vacated, or it is no longer equitable that
the judgment should have prospective application; or (6) any other reason
justifying relief from the operation of the judgment. The motion shall be made
within a reasonable time, and for reasons (1), (2), and (3) not more than one
year after the judgment, order, or proceeding was entered or taken. A motion
under this subdivision (b) does not affect the finality of a judgment or suspend
its operation. This rule does not limit the power of a court to entertain an
independent action to relieve a party from a judgment, order, or proceeding, or
to grant relief to a defendant not actually personally notified as provided in
Title 28, U.S.C., 1655, or to set aside a judgment for fraud upon the court.
(emphasis added).
7

The guarantee stated:

The undersigned company herewith guarantees to pay upon first request the
agreed sum, plus interest and costs, in the amount to which the plaintiff is
entitled pursuant to a final decision of the German courts or on basis of a
settlement agreement.
App. at 612.

On appeal, the Insurers contend that the district court should have dismissed
this cause of action "with prejudice." However, if an accounting of costs and
interest is made by the German appeals court, Zack would presumably be
entitled to recover on the guarantee